Contagion confined to equities for now

The run on British bank Northern Rock either side of the weekend has provided fertile ground for rumours relating to banks with some resemblance to the bank's funding model - one dependent on wholesale funding and securitisation and relatively little on household deposits.

Shares in several of Spain's regional banks took a hammering as did, in Australia, shares of Adelaide Bank, which is the most reliant on securitisation of any local lender. Shares in Adelaide Bank fell seven per cent yesterday while shares in Bendigo Bank, which plans to buy Adelaide in an all-share deal later this year, fell six per cent.

Dissemination of a rumour that Adelaide Bank was seeking some form of emergency funding from the RBA generated on the record denials from the Reserve Bank and also Adelaide.

In brief comments with various wire services RBA deputy governor Ric Battelino said simply "those rumours are false".

Adelaide said in prepared lines that "market rumours that Adelaide Bank is seeking liquidity assistance from the Reserve Bank are false and without foundation. We'd like to reiterate we have a continued strong liquidity position with a diverse mix of funding options."

Supposedly the bank's liquidity ratio has improved over the last six weeks though the bank isn't saying what that ratio is.

Bendigo Bank is in the invidious position, in the current market, of sourcing 80 per cent of funding from retail deposits. Adelaide Bank sources 40 per cent of funding from retail deposits, which is around about the median for listed banks.